Effort to transform ferry system a lift for next Legislature

The Alaska ferry M/V Tustumena approaches the Kodiak Ferry Terminal after a dock replacement project by Pacific Pile and Marine in 2016. Overhauling the state Marine Highway System will likely be a priority for coastal legislators in the next session, who are trying to draw allies from the Interior who’ve regularly objected to the costs of supporting the system. (Photo/Courtesy/Pacific Pile and Marine)

Election Day is still months away but some coastal Alaska legislators are already ramping up to overhaul the state ferry system in the 2019 legislative session.

House Transportation Committee co-chair Rep. Louise Stutes, R-Kodiak, said during an Aug. 16 hearing that a top priority of the committee for the upcoming session will be revising legislation to turn the Alaska Marine Highway System from a subset of the state Department of Transportation into a semi-independent public corporation.

Stutes, who won her GOP primary Aug. 21, is a member of the bipartisan House Majority coalition, which currently holds a small majority over the House Republican Minority caucus.

She said House Bill 412, introduced by the Transportation Committee late in the last session that ended in mid-May, received unanimous support from its members.

Exactly what changes will be made to HB 412 are unclear at this point, but it also has backing from other Interior Alaska legislators, according to Stutes, who historically have questioned the cost of the ferries that require significant ongoing state funding support to operate.

“Aside from maintaining healthy fisheries, revitalizing our ailing ferry system is probably the most important issue to coastal Alaska,” she said.

State Marine Transportation Advisory Board chair Robert Venables stressed during the hearing that taking AMHS funding battles out of the Legislature’s annual debates as much as possible is crucial to forming a more effective and efficient ferry system.

“Finding that mechanism for at least getting stabilized funding would at least allow the ferry system to capture the most revenue from the highest revenue months,” he said.

Venables is also the executive director of the Southeast Conference, an economic and community development nonprofit for the region.

Former Commerce Department Commissioner Susan Bell largely echoed Venables assessment. They emphasized that reliable state funding would allow AMHS leaders to publish sailing schedules, particularly for the busiest summer months, further in advance, which in turn would give potential passengers more time to plan travel and hopefully increase bookings.

Nonresident passengers comprise up to 40 percent of ferry riders any given year, according to AMHS officials, who market the ferries as an alternative to the giant cruise ships that traverse the Inside Passage each summer.

The fights in the Legislature over ferry funding while the state grappled with multibillion-dollar budget deficits led to a 28 percent cut in state support for the AMHS over the last five years, from $124 million to $89 million. The budget cuts directly led to cuts in service, according to DOT leaders, which have led to lower expenses but also lower revenues.

Between fiscal years 2015 and 2017 AMHS operating revenues went from an all-time high of $53.9 million to $45.8 million, a 15 percent reduction, while overall service was cut about 13 percent over the period, according to AMHS financial reports.

The system’s fleet has also gone from 11 to nine working vessels in recent years.

Bell is also a principal for the Alaska economics research firm McDowell Group, which helped study options for revamping the model under which the system operates.

McDowell Group primarily conducted a revenue analysis of the operations and looked for new revenue sources. Seattle-based naval architectural and marine engineering firm Elliott Bay Design Group led the two-phase reform evaluation, which started in the spring of 2016.

The first round of studies looked at other ferry systems worldwide to determine what could be pulled from their operations to benefit Alaska. Phase two formed the long-term operating strategy and included McDowell’s revenue analysis.

HB 412 is largely the end result of those studies.

Transitioning to a public corporation model should provide the system with more continuity in senior leadership, Bell said, allowing for more institutional knowledge and long-term planning.

The reform studies recommend a seven-member board of directors with a majority of members bringing business and maritime transportation expertise and at least one member to represent the system’s union employees.

House Speaker Bryce Edgmon, D-Dillingham, suggested the board have an ex-officio member from the system’s Outside ports of call, either Prince Rupert, British Columbia, or Bellingham, Wash.

Bellingham service generates an average of 44 percent of the system’s operating revenue as the long-haul service is a popular way for military service members and other Alaskans to move in and out of the state from the Lower 48.

As a sub-agency of DOT, the highest levels of ferry system leadership usually change with each governor’s administration.

In May, DOT Commissioner Marc Luiken appointed longtime former Unalaska Mayor and Marine Transportation Advisory Board member Shirley Marquardt as the first executive director of the Alaska Marine Highway, a move made to start the transformation of the ferry system.

“Having the public corporation model set up so it is run by people that are passionate about its mission brings a whole different element to operations than the status quo,” Venables commented.

Bell also urged during a presentation to the Transportation Committee that labor negotiations with the system’s employee unions currently handled by Department of Administration officials be negotiated directly by AMHS officials, which would improve labor-management communication and could help reduce labor costs by inserting more industry expertise into the labor talks.

Venables said many of the changes should be made to make the system run more as a private-sector operation.

“We really should be operating more like business. It’s always going to have a public mission; it’s always going to need some level of funding support from the state to achieve that public mission, but it’s a $150 million enterprise that needs to be run more like a business,” he said.

Full privatization has been dismissed because Alaskans would lose much of the essential services the system provides, according to reform strategy documents.

However, Venables said the overhaul should not stop at the system’s management structure. He insisted the AMHS needs to continue to move toward a more standardized fleet with smaller ferries feeding mainline vessels that make the long distance sailings to Bellingham, across the Gulf of Alaska and out the Alaska Peninsula and Aleutian Islands.

That will mean keeping politics out of fleet selection and vessel design and letting contracted marine architects handle that work, Venables said.

“We’ve got kind of a troubled history in trying to design the right boat so we’re going to take a fresh look — even at the Alaska class vessels,” he said.

The M/V Tazlina, the first of the two Alaska class “day boat” ferries was christened in Ketchikan Aug. 11. The twin, 280-foot ferries are planned for use in Lynn Canal between Juneau and the road-accessible towns of Haines and Skagway.

Built at Vigor Industrial’s shipyard in Ketchikan, the Tazlina and the Hubbard are the first AMHS ferries built in Alaska.